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You've just hit a "pay wall." Panama-Guide subscribers who have logged in to their user accounts can see the full text of this article. However non-members can only see this short introduction. If you would like to subscribe, please click this link to subscribe via PayPal.

You've just hit a "pay wall." Panama-Guide subscribers who have logged in to their user accounts can see the full text of this article. However non-members can only see this short introduction. If you would like to subscribe, please click this link to subscribe via PayPal.

The deal — the latest in an industry that has concentrated to leave ever fewer pure copper miners behind — creates one of the world's biggest producers of the red metal.

It also transforms First Quantum, which until now has made more than 80 percent of its profit in Zambia.

First Quantum, for its part, faces arguably its toughest test to date in Inmet's US$6.2 billion Cobre Panama project, the jewel in the miner's crown.

Cobre Panama is one of the biggest untapped copper deposits in the world, but also one of the most expensive — in an untested country with little mining history.

“They've certainly shown themselves to be very efficient and effective project managers in the past, successfully executing on what much larger firms have struggled with,” said Daniel Rohr, a mining analyst at Morningstar.

First Quantum, which cut its teeth in Zambia as the country re-privatized its mines in the 1990s, is betting its hands-on approach to construction, procurement and supervision will help slash costs at Cobre Panama while keeping to deadlines.

“There will be a hiatus of three to six months, whatever it takes to do a comprehensive reassessment and renegotiations where required. But our build time will be much shorter,” First Quantum President Clive Newall told Reuters.

“We have a two-year construction phase (at) our projects, so we will be able to stick pretty closely to Inmet's schedule, which was for commissioning at the end of 2016 or the beginning of 2017.”

Newall dismissed concerns that Inmet's existing contracts might have locked in high costs. But he said it would be “several months” before the group could publish specific targets and its own plan for the mine, where challenges include heavy tropical rainfall.

The trick now will be to build the mine on time and on budget in a world where costs have skyrocketed and the outlook for metals prices is murky. Moreover, Cobre is to be built in a country, Panama, that has virtually no mining industry to speak of.

Vancouver-based First Quantum gained control of the project this week with the hostile takeover of Inmet Mining Corp., and hopes it can shave as much as $1-billion (U.S.) from the $6.2-billion construction cost budgeted by its current owner.

The mine, already fully financed under Inmet, will be the largest ever in Central America and represents the most ambitious development project in Panama since the building of the Panama Canal. After it comes into production in 2016, it is expected to produce about 300,000 tonnes of copper a year for 40 years.

Analysts are divided on whether First Quantum can build Cobre Panama more cheaply than Inmet, pointing to such massive cost escalation across the mining industry that it has felled free-spending CEOs and decimated smaller companies.

Specific challenges at Cobre Panama include the scale of the project, which is much bigger than anything First Quantum has built to date, and working in the Panama rainforest. The company will need to work with the government and local communities to assure them the project will proceed as planned under Inmet.

“The company has provided no information about where they think they could save on the costs as estimated by Inmet, and given their lack of experience in that part of the world … my assumption is that they won’t find any cost savings,” said Salman Partners Inc. analyst Raymond Goldie, pointing out the industry has seen cost inflation of about 15 per cent in the past year alone.

TD Securities Inc. analyst Greg Barnes said in a recent report that costs could be as high as $7-billion, and also forecast the project might take a year longer to build than Inmet’s base case scenario.

Delays have had among the most injurious effects on a project’s costs, especially where work forces numbering in the thousands must be maintained and co-ordinated.

On the other hand, analysts point at First Quantum’s mines in Mauritania, Zambia and Australia as proof it can build projects cheaper than rivals.

“By their own admission, First Quantum has identified about $1-billion that they don’t think needs to be spent on the project,” said John Hughes, an analyst with Desjardins Securities in Toronto.

First Quantum declined to comment because its acquisition of Inmet is not yet complete, with the deadline for shareholders to tender to the deal on March 21.

In an interview in January, First Quantum said the company could extract savings from indirect costs, such as contractors and staff not directly associated with equipment and plants.

The company had access to Inmet’s confidential books for nearly a week in February, including a visit to the property, but it may be months before it has sufficient data to map a cost-savings plan.

While differing on how much First Quantum can do to reduce costs, analysts agree the company will be challenged by a volatile copper market and uncertain demand from key markets. They point out that Panama, while politically stable, has no mining culture.

“Panama is not exactly a proven mining district,” Mr. Hughes said. “Without a real history and structure and without precedent set with regards to large mine development and construction, the Cobre Panama will be, really, the test project for existing mining laws in Panama.” (theglobeandmail.com)

Editor's Comment: I'm sort of glad the fight is over. This massive project, producing 300,000 tons of copper a year for 40 years, will create a new mining industry in Panama where none has really existed before. This will be yet another engine to fuel the continued expansion of the Panamanian economy.

First Quantum said in a statement issued on March 12 that a total of 43.2 million Inmet shares, representing about 61.45 percent of the company’s outstanding shares, had been tendered in favour of the cash-and-stock bid. Aiming to go forward with the deal, First Quantum said it extended its takeover bid by 10 days to 23:59 EDT on March 21 and lowered the level of minimum support required. It said it will now proceed with the transaction if more than 50 percent of Inmet’s outstanding shares are tendered in favour by March 21, instead of the initial target of more than two-thirds.

Moving Closer to Gaining Control of Cobre Panama - “We are delighted with the overwhelming support that Inmet shareholders have shown for our offer,” First Quantum’s Chief Executive Philip Pascall said, as quoted by The Financial Times. “It is our expectation that we will be in a position to complete the offer and begin taking up and paying for shares shortly following the expiry of the offer on March 21.”

The strong endorsement from Inmet’s shareholders and the lowering of the required minimum number of Inmet shares tendered to the offer takes First Quantum a step closer to acquiring its fellow company and gaining control of the Cobre Panama project. The $6.2 billion (£4.1 billion) project in the Central American country is First Quantum’s main goal and a driver for its acquisition efforts. The trophy mine is said to be one of the largest undeveloped copper resources in the word, expected to produce 300,000 tonnes of copper a year. Cobre Panama, plus Inmet’s other mining projects in Zambia, Peru and Finland, could put First Quantum’s annual copper production at over one million tonnes, making it one of the world’s largest pure-play copper miners.

First Quantum Extends Inmet Takeover Bid to March 21 - First Quantum Offer First Quantum’s takeover bid for Inmet is worth roughly C$5.1 billion, or C$72 a share, representing a 36 percent premium to Inmet’s closing share price on November 27, the day before the company announced that it had rejected two earlier, unsolicited offers from First Quantum. Having grown impatient after Inmet’s board denied its previous acquisition bids, First Quantum took its acquisition offer for Inmet to shareholders (First Quantum Launches Hostile Bid For Inmet). In response to this hostile takeover attempt, Inmet sent a letter to its stakeholders earlier this month urging them to reject the offer as too low, especially after taking into account a decline in the value of First Quantum’s shares amid a volatile copper market.

Copper prices currently hover near $3.50 a pound, compared to $3.80 a pound when First Quantum first approached Inmet with its acquisition proposal. Inmet shares, which closed at C$68.63 on the Toronto Stock Exchange on March 11, rose to trade closer to the First Quantum offer price the following day. They closed C$1.35 higher at $69.98 on March 12, while the First Quantum share price was up five Canadian cents at C$20.69.

The offer had been set to expire Monday night, but was extended as First Quantum said some 61.45 per cent of Inmet's shares had been tendered to its bid.

The Inmet board has rejected the $72 per share offer - half in cash and half in stock - as inadequate.

However, even though the Inmet board urged shareholders to reject the deal, it waived application of a shareholder rights plan that would have thwarted the unsolicited bid after it failed to come up with a rival offer.

Philip Pascall, CEO and chairman of Vancouver, based First Quantum, declared himself "delighted" with the response to the offer.

"We have varied our offer such that the minimum tender condition will now be satisfied if more than 50 per cent of the Inmet shares have been tendered at the revised expiry time of the offer," Pascall added.

"Accordingly, with all regulatory approvals already received, it is our expectation that we will be in a position to complete the offer and begin taking up and paying for shares shortly following the expiry of the offer on March 21, 2013."

If more than two thirds of outstanding shares have been deposited by the new deadline, First Quantum will implement a subsequent transaction to acquire the balance of the Inmet shares, something that could take several months, the company said Tuesday.

On the Toronto Stock Exchange, Inmet shares were up $1.27 at $69.90 in early trading Tuesday, while First Quantum was up a penny at $20.65.

Inmet, with mining operations in Turkey, Spain and Finland, also owns 80 per cent of the Cobre Panama project through Minera Panama SA and the remainder is owned by Korea Panama Mining Corp.

The total cost of Cobre Panama is estimated at $6.2 billion, including $1.4 billion to be funded by Korea Panama Mining and $4.8 billion through Inmet.

Last year, Inmet signed a deal with a joint venture led by SNC-Lavalin Inc. for the first phase of the planning and construction of a process plant at the project.

First Quantum has said the combination of the two companies would create one of the world's fastest growing copper miners with the potential to produce more than 1.3 million tonnes of copper annually by 2018.

The bid by First Quantum follows the sale of its operations in the Democratic Republic of Congo to Kazakhstani miner Eurasian Natural Resources Corp. for $1.25 billion.

First Quantum had written off the value of the assets in 2010 after its operations in Congo were nationalized by the government of the mineral-rich central African country. (The Canadian Press)

Inmet has rejected the offer and recommended shareholders reject the bid, but has waived the application of a shareholder rights plan after a review of strategic alternatives.

The First Quantum stock-and-cash proposal, which is valued at $72 per share, is open until Monday.

Inmet has mining operations in Turkey, Spain and Finland, along with an 80 per cent interest in Cobre Panama, a development property in Panama currently in construction. (thetyee.ca)

“A transaction with a minority partner will further de-risk Cobre Panama. It will provide an upfront cash payment as well as a source of capital to fund the partner’s share of Cobre Panama capital costs going forward,” Inmet Chairman David Beatty said in an open letter to shareholders.

Toronto-based Inmet is trying to fight off a $5.1-billion, hostile takeover bid from First Quantum Minerals Ltd., a Vancouver-based copper miner focused on operations in Africa. The First Quantum bid expires on Monday at midnight.

Inmet did not provide further details about the talks to sell a stake in Cobre Panama. Previously , First Quantum has expressed concern about a potential stake sale diminishing the value of Inmet and viability of the takeover offer. (theglobeandmail.com)

The agreements reflected in the term sheet will be incorporated into a definitive agreement to be executed by the parties. The total value of the arrangements agreed to by the parties is up to US$150 million. Inmet will guarantee the obligations of MPSA under the term sheet and the definitive agreement to be executed between the parties.

The main commercial terms are as follows:

MPSA will purchase, and Petaquilla´s infrastructure division will supply, up to US$100 million (a minimum of US$75 million) of aggregates over a three year period for use in the Cobre Panama project;

MPSA will lease from Petaquilla´s mining division, for an annual rental of US$1.3 million, certain lands that will be used for temporary and permanent camp space for the Cobre Panama Project; and

Petaquilla has applied for mineral exploration concessions which, if granted, could entitle it to mineral exploration rights on land where Cobre Panama project infrastructure will be built.

If and when such concessions are granted, certain areas on which Cobre Panama infrastructure will be located shall be formally assigned to MPSA. MPSA shall also have an option to receive an assignment of certain areas of such concessions that are not required by MPSA under the current Cobre Panama project plans.

The remaining value of the agreement is comprised of forgiveness of royalties and release of certain monetary claims by Inmet and MPSA.

The term sheet reflects both companies' commitment to "promote the sustainable development of the Donoso mining district in accordance with the highest national and international social and environmental norms," said Petaquilla President Rodrigo Esquivel. Steve Botts, CEO and President of MPSA, commented, "I am very pleased we have reached this agreement, which represents a new chapter of collaboration between our companies and signals the continued development of a model mining industry in Panama."

Petaquilla and Inmet, former joint venture partners, have successfully negotiated other arrangements in the past, namely the 2005 Molejon Gold Project Agreement, which led to Petaquilla's gold mining operations at its Molejon gold deposit. (Press Release)

Under the binding term sheet announced Monday, which requires a definitive agreement, the two companies have resolved a number of outstanding issues.

Their deal comes as Vancouver-based First Quantum attempts to acquire Inmet through a $5.1-billion hostile takeover bid that expires Wednesday.

Among other things, an Inmet subsidiary has agreed to buy from Petaquilla between US$75 million and US$100 million of aggregates — usually referring to sand, gravel or loose rock — for use in the Cobre Panama copper project.

Inmet will also lease certain lands from Petaquilla as sites for temporary and permanent worker camps at Cobre Panama, at a rate of US$1.3 million annually.

Toronto-based Inmet has also agreed to drop certain claims against Petaquilla, which is headquartered in Vancouver. (Vancouver Sun)

Editor's Comment: That's nice. It made no sense for these two companies to be fighting over the details when there's so much gold and copper in the ground under their feet. Personally I don't care what company is doing what, as long as these mines are developed in Panama, which will bring long term economic growth and jobs. The Inmet mine has a build out of more than $6 billion dollars - more than it cost to expand the Panama Canal. These mines are a very big deal for the Panamanian economy. Huge.

First Quantum said Inmet’s rejection did not include any compelling alternatives to its proposal and presented only “generic and rehearsed arguments.”

The investor meetings will give Inmet shareholders a chance to speak to and hear from members of First Quantum’s senior management team themselves.

“We hope you will be able join us at these events,” First Quantum chairman and chief executive Philip Pascall wrote in a letter to shareholders, released Thursday.

Inmet owns 80% of the Cobre Panama copper project through Minera Panama SA, with the remainder owned by Korea Panama Mining Corp.

In rejecting the offer, Inmet said the offer of $72 per share, half in cash and half in stock, undervalued the company and its Cobre Panama project.

The company pointed to the risk of swapping Inmet shares for those of First Quantum and the bidder’s relative lack of experience building a mine the size of the project in Panama.

Inmet also said this week it was in talks regarding a range of alternatives as it formally rejected First Quantum’s hostile takeover bid.

First Quantum said Thursday that Inmet should also open talks up with it.

“The Inmet Board has not heard from us about our business and about our plans for the combined entity, even though Inmet shareholders have been offered the opportunity to participate in our future success through ownership of First Quantum shares,” Pascall wrote in his letter.

“This clearly limits the Inmet Board’s ability to provide a sound and reliable recommendation to you on the merits of our offer.”

First Quantum has said the combination of the two companies would create one of the world’s fastest growing copper miners with the potential to produce more than 1.3 million tonnes of copper annually by 2018.

The bid by First Quantum follows the sale of its operations in the Democratic Republic of Congo to Kazakhstani miner Eurasian Natural Resources Corp. for $1.25-billion.

First Quantum had written off the value of the assets in 2010 after its operations in Congo were nationalized by the government of the mineral-rich central African country.

First Quantum increased its offer last month to $72 per Inmet share or about $5.1-billion after an earlier bid of $4.9-billion was also rejected.

Inmet shares were down 27 cents at $70.50 in trading on the Toronto Stock Exchange on Thursday. (The Canadian Press)

Editor's Comment: This is an important Panama story because Inmet is the company developing the massive new copper mine here. The company plans to spend at least $6 billion dollars in Panama over the next five years just to build the mine and bring it on line, more than it cost to expand the Panama Canal.

The response, more than a month after First Quantum announced its latest cash-and-stock offer, may set off a race for Inmet, one of the world’s major copper miners.

Inmet said in its statement that it was considering “strategic alternatives,” usually code for a sale or joint venture. The company said it had approached a number of unnamed third parties about possible transactions.

In the meantime, Inmet is urging shareholders to reject First Quantum’s tender offer, which is scheduled to expire at 5 p.m. on Feb. 14. The bid was valued at about $72.87 last month.

The mining sector is playing host to a round of consolidation, as companies seek greater scale to take advantage of a boom in the production of metals and minerals. Last year, Glencore agreed to buy Xstrata in a $32 billion deal.

By merging with Inmet, First Quantum would be aiming to become one of the world’s biggest copper producers, producing about 1.3 million metric tons of the metal annually by 2018. Inmet Mining’s chairman, David Beatty, said the First Quantum bid undervalued the company. The Inmet board said in its statement on Tuesday that First Quantum’s offer failed to take into account the expected yields at its Cobre Panama site in Latin America. The 13,600-hectare site, located west of Panama City, is one of the biggest untapped copper deposits left in the world, and Inmet expects the site to increase its production by 176 percent in about five years’ time.

The company added that a merger could yield significant risks to its shareholders. In part, Inmet cited First Quantum’s poorer development record and lack of experience in Latin America.

“The Inmet Board has concluded that the First Quantum offer fails to adequately compensate shareholders for Inmet’s low risk asset base and its strong prospects for growth and value creation at Cobre Panama,” David R. Beatty, Inmet’s chairman, said in a statement.

“The board is engaged in a thorough and rigorous process aimed at investigating all potential strategic alternatives to maximize shareholder value,” he added.

Inmet is being advised by the Canadian Imperial Bank of Commerce and the law firm Torys, while a special committee of its board has retained Scotia Capital.

First Quantum said that it was concerned that Inmet is trying to sell a minority interest in its Cobre Panama project. According to the firm, the massive mining project in Panama is one of the main reasons it has targeted Inmet.

Philip Pascall, Chairman and CEO of First Quantum said this in a letter to Inmet's Chairman, David R. Beatty. He added, "It is a condition of First Quantum's Offer that Inmet and its subsidiaries not take any action which might have the effect of materially diminishing the economic value to First Quantum of the acquisition of Inmet.

He added, "First Quantum believes that shareholders of Inmet should be given a real opportunity to decide between our offer and any such "strategic alternative.

Mr. Beatty said that the letter underscored the hostile nature of First Quantum's approach. "We note that, while First Quantum says it wishes to engage in friendly discussions, it is simply not," he said.

First Quantum started the clock ticking on its $5.1-billion hostile bid for Inmet on Wednesday by mailing its offer to Inmet shareholders. Toronto-based Inmet has 15 days to respond and the offer is open until Feb. 14, though the timeline could be extended.

Throughout the takeover battle, First Quantum has stated it can build Cobre Panama for significantly less than the US$6.2-billion cost Inmet is targeting. Now, First Quantum has looked at the steps Inmet has taken to de-risk the project and declared they were harmful for investors.

For example, CEO Philip Pascall noted Inmet has raised US$2-billion of high-yield debt, much of which is not needed until at least 2014. While this has reduced the financial risk of Cobre Panama, it adds US$170-million to the project’s costs every year, he wrote in a letter to Inmet shareholders. He also criticized the US$1-billion gold stream financing on Cobre Panama that Inmet announced last summer, which provides immediate capital but removes upside from the project.

On the operations side, Mr. Pascall criticized Inmet for what he called “the unfettered use of costly outside consultants and project sub-contractors.” First Quantum is confident it can save money by using its in-house team.

Inmet is only a $5-billion company, so it had to raise such financing early on to convince investors it could build such a massive mine. But Mr. Pascall said it would not have been necessary for First Quantum given its larger size, strong technical expertise and conservative balance sheet.

“A combination between First Quantum and Inmet will substantially de-risk Cobre Panama for the benefit of all shareholders,” he wrote.

While First Quantum has taken its bid directly to Inmet shareholders, the company has also made clear that it would welcome friendly negotiations. It has avoided the “best and final” language that is often a sign that an offer will not be increased

Inmet and financial advisor CIBC World Markets are studying every potential opportunity to wring more value out of the company. But sources close to the takeover battle believe that finding a friendly bidder will be extremely tough.

Senior mining companies are conserving capital and halting their high-cost projects, while the world’s biggest publicly-traded copper company, Freeport-McMoRan Copper & Gold Inc., is busy trying to break into the oil and gas sector. Teck Resources Ltd. used to be involved in Cobre Panama, but the miner sold its stake in 2008 and maintains a more conservative balance sheet today.

First Quantum president Clive Newall noted in an interview that there are scarcely any rumours of white knight bidders, which is highly unusual in a contest like this. He said First Quantum’s “unique ability” to build Cobre Panama at a reduced cost cannot be matched by any other company.

First Quantum maintains that Inmet’s key shareholders support the proposed merger. While it is not naming names, Inmet has a tight shareholder structure and two investors — Leucadia National Corp. and Temasek Holdings Ltd. — control 27% of the company.

Inmet shares closed Wednesday at $72.26, less than 1% above the takeover offer price of $72.